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The tidal wave of initial public offerings (IPO) has now dried up as the market reels. Out of eight IPOs set to price last night, four got put on hold.
Those that failed to get out the door: Lombard Medical (EVAR)—which cited the dreaded "poor market conditions" according to Renaissance Capital—SCYNEXIS (SCYX), Paycom Software (PAYC), and City Office REIT (CIO).
An amended S-1 (called an FWP Amendment) was filed by Paycom, which contained updated information on the first quarter: revenues up, net income down compared to last year. It's not clear if they will be able to price later today or not.
This one is not hard to figure out: you need a good stock market at your back to have a strong IPO market, and you haven't had that in the past month.
There's been a strange phenomenon going on I want to clear up: I've been hearing from my hedge-fund friends—particularly tech-oriented hedge funds—that there are considerable losses in the last two weeks, and yet the CBOE Volatility Index (VIX), which measures the relative levels of put and call buying in the S&P 500 near-term options, has barely budged, remaining at around 15, well below its long-term average.
Many have said that this is a sign there is no fear in the market.
I think this observation is inaccurate. There is fear, but it is not being expressed in the VIX.
When will the rotation end?
I have said for days that all this talk about rotation out of biotechnology and big momentum Internet stocks actually involves very few companies.There are essentially two dozen or so caught up in this whirlwind: of those, most of have lost roughly 20 percent in the past month.
Earnings expectations are absurdly low, which means it will not take much to beat them. There seems to be a combination of yen carry trade unwinding (Japan's currency has been strengthening last several days). Most of all, there are concerns about how strong U.S. second quarter growth will be (10 year yields are generally lower). The Federal Reserve's taper may also be an influence.
"Never has a new all-time high cost so many so much."
That's what one savvy trader (he wouldn't let me use his name) said about the action in the last two days.
And he has a point. A second intraday high in the S&P 500, and a second awful day, closing not far from the lows, with almost two-to-one declining-to-advancing stocks.
And leadership groups are weak since the beginning of the month:
But let's face it: Big-cap tech has had an amazing run. Semiconductors have been on fire: XSD, the main ETF for semiconductors, is up 11 percent this year despite being down three percent today.
Stocks do rotate!
For the week, the S&P 500 +0.4%.
Judging by the employment report (and a few other data releases) the economy appears to be getting better. Nonfarm payrolls, which rose 192,000 for March, was close enough to Wall Street's 200,000 estimate. But the revisions are important, especially the private payroll revision of 188,000 from 162,000 in February. Meanwhile, the labor force participation rate moved up as well.
The bottom line: the labor market is not as bad as we thought.
Not surprisingly, there are all sorts of proposals flying around on what to do—if anything—about high-frequency trading.
Here's my prediction: there will be hearings by both the Congress and the Securities and Exchange Commission, but it's very unlikely anyone is going to do anything radical anytime soon.
I believe there is great concern about the Law of Unintended Consequences. The SEC spent years debating what would happen if regulators enacted Reg NMS, which codified rules for dark pools, allowed stock exchanges to pay rebates, and generally, vastly encouraged the markets to "speed up."
Seven years later, they are still sorting out the consequences, one of which is high-frequency trading.
Today, I was on the air with former Sen. Ted Kaufman, who called for eliminating rebates to exchanges, and, by extension, the ability of discount brokers to receive payment from other brokerage firms for sending their order flow to them.
The result? Shares of companies like TD Ameritrade (AMTD) and ETrade (ETFC) dropped 6 percent.
See? Just talking about it causes issues.
Why do companies pay for order flow? The rationale—from the point of view of the discount brokers—was why should we pay for maintaining increasingly expensive, massive trading systems? Why not outsource that part of the business? Our customers want low payments for commissions. That's what matters most.
So, a business model developed along those lines. A more thoughtful, systematic approach is needed, because there are other issues as well.
One issue worth examining is a so-called "speed bump" that would slow traffic down by a few milliseconds.
Here's the core of the problem: because there are 13 different exchanges and some 40 dark pools, market makers, high-frequency traders—really, anyone who wants provide bids and offers in the marketplace—have to post their bids and offers on all the exchanges. This leads to a big problem: if someone posts an offer to sell, say, 100 shares of Pfizer and that offer is taken, the trader posting the offer then has to cancel all the other offers on all the other exchanges.
You can see the frustration this causes: constantly cancelling bids and offers on the exchanges means there is a huge amount of "phantom" liquidity in the market.
That's one issue. Here is another problem: high-frequency traders, because they pay for faster lines, can get to the "slower" exchanges faster than others, cancel those offers that are no longer relevant ... and then make a new offer a penny higher!
This is the source of all the complaints that high-frequency traders are "front running" other traders. This is legal, so it is not technically front running, but it does raise fairness issues.
It has also led to complaints that high-frequency traders are displacing the real market makers who are willing to take risk.
What to do?
There has been a lot of talk of a "fee" or "tax" on excess message traffic. That would certainly reduce a lot of the traffic, but there is a lot of resistance to the idea of any kind of tax.
A more interesting idea is the "speed bump," which would require a delay between the time an order arrives and the time it is allowed to execute. The problem, as I have written many times, is that if there is simply a delay of, say, one second, then the minute you end that one second, the faster machines still have the advantage. You've just reset the clock a second later.
One proposal to change this is that each order be held for some random time period, say 10 to 200 milliseconds. By randomizing the time the order is held, no one would know how much the order is slowed. The number could be generated randomly by a computer. The end customer, the argument goes, would not care about a fifth of a second delay. However, the high frequency trader very much would.
The bottom line: this is not an easy issue. Before we throw everything out and completely crash the system, let's look at it in a "holistic" way. Let the SEC come out with hearings and a definitive timetable to come up with a statement on what is right with trading (and there is plenty) and what is wrong with it.
Click here for my laundry list of things I want addressed.
In spite of a jumpy market, the initial public offering (IPO) deluge continues. On the Nasdaq, Chinese technology services educator Tarena International priced 15.3 million shares at $9, in the middle of the $8 to $10 range. Separately, drug delivery systems provider Corium International priced 6.5 million shares at $8 —way more than the 5.5 million shares expected but below the price talk of $10-$12.
Two big ones pricing tonight: Grubhub (GRUB), the leading mobile platform for restaurant pick-up orders, is looking to price 7.0 million shares at $23-$25. Grubhub is a mere $165 million deal.
The really big offering comes by way of IMS Health Holdings, looking to price 65.0 million shares at $18-$21. They are one of the biggest online healthcare data managers in the world, with drug and insurance companies as clients. They are trying to figure out what is happening with patient usage of their products.
Is the stock market rigged?
The epic food fight between Brad Katsuyama of IEX and Bill O'Brien from BATS Global Markets on CNBC's "Power Lunch" on Tuesday obscured a larger message: the average investor buying, say, 100 shares of IBM through his Ameritrade account in all likelihood will never interact with a high frequency trader. That person's trade will get executed at the best bid and offer, and will pay a commission under $10—far cheaper than he or she would have paid twenty years ago.
The real impact is on institutional traders, who have found it very difficult to execute orders in large sizes.
Welcome to April! Normally, the first day of the month sees a small push of new money being put to work in the market. You'd think that would generally lead to an up month—and for the most part, first days of the month are up.
Not recently, however. For some reason, the S&P 500 has been down the first day of the month for the last four months. The last time that happened was 2011; prior to that, we were up six months in a row.
The big issue for this quarter will be: will they economy pick up? We need U.S. gross domestic product to pick up steam from 1.5 to 2 percent in the first quarter, to 2.5 percent in the second, and over 3 percent in the second half.
The big debate on trading desks for Q2 will be growth versus value. The popular trade going into Q1 was to be long growth and short non-growth.
Bill Ackman also tells CNBC that Allergan's poison-pill defense doesn't make his takeover bid more difficult.
The bull market is seeing the equivalent of its first gray hairs and the proof is in Tuesday's blast of merger activity.
Greenlight Capital supports the subject of the book 'Flash Boys' and thinks investors should consider routing orders there.